Four Investment Banks By BHP As It Eyes U.S. Shale Exit

Reports indicate that the largest mining company in the world, BHP, has asked for the help of four investment banks in preparing for either a spin-off or a sale of its gas and shale oil unit in the United States which is underperforming. Sources say that the miner intends to make a decision early next year.

Four months ago BHP indicated that it intended to dispose of onshore sale assets located in Fayetteville, Haynesville, Permian and Eagle Ford basins. BHP acquired the assets when there was a boom in oil prices and they are thought to possess a value of over $10 billion.

Leading Wall Street banks

Bank of America-Merill Lynch and Barclays have already been hired by the miner and charged with the responsibility of assessing options with a view to selling assets. The two financial institutions will also be required to determine whether the assets should be sold separately or together. Goldman Sachs and Citi have also been tasked with finding out what the potential of a spin-off would be. Ordinarily a spin-off is a tax-free solution.

Despite the fact that the prices of oil have steadied following a multi-year low of $27 per barrel that was reached last year, they are still 40% lower compared to the $112 per barrel price which was hit three years ago.

After either selling or spinning off the unconventional assets, the miner is expected to keep the conventional properties in Australia, Trinidad& Tobago as well as in the Gulf of Mexico. Until 2014 BHP’s entire oil unit whose value now stands at over $20 billion, generated the second-highest revenues after iron ore. But starting in 2015, collapsing prices of oil and gas as well as bad bets on shale in the United States have resulted in the division being a big drag. Two years ago BHP also faced other woes in Brazil following a dam disaster.

Pressure from activist investor

Consequently, Elliott Advisors, a U.S. activist investor, has increased its stake in the London-listed arm of BHP to 5% and called for the selling of the miner’s entire petroleum business in the United States in order to increase shareholder value.

“Splitting the business into a standalone company would give shares back to shareholders,” said a source.

The problem with the above assumption however is that majority of BHP’s shareholders are mining investors who might not want to hold oil shares. Some of the companies that might be interested in acquiring BHP’s assets include Exxon Mobil, Statoil and Chevron.